NEW YORK, Nov 30 (Reuters) - U.S. Treasury yields rose sharply on Thursday, in line with the steep rally on Wall Street, on news that Senator John McCain had endorsed the U.S. Senate tax bill, potentially easing challenges to its eventual passage in Congress.

Yields on U.S. 10-year notes surged to five-week peaks, while those on two-year notes hit a fresh nine-year high just shy of 1.8 percent.

Yields on U.S. 30-year Treasuries rose to a two-week high.

However, yields later retraced about half their rise as some market participants doubted the efficacy of the current tax cut proposal and its impact on U.S. growth.

“People (were) waiting for the knee-jerk reaction to go back in and buy Treasuries,” said Aaron Kohli, interest rates strategist at BMO Capital Markets in New York. “The market doesn’t have faith in either the package or the results. Probably both.”

McCain, who was instrumental in defeating the Republican push to overturn the Affordable Care Act earlier this year, said the bill was “far from perfect” but would boost the economy and provide tax relief for all Americans.

The Republican-controlled Senate is expected to begin a potentially chaotic “vote-a-rama” on amendments from Republicans and Democrats before moving to a final vote late on Thursday or early on Friday.

Earlier, U.S. yields got a boost from U.S. data showing a rise in inflation and a decline in jobless claims, reinforcing expectations of an interest rate increase next month and several more in 2018.

The Federal Reserve’s preferred inflation measure, the personal consumption expenditures price index excluding food and energy, rose 0.2 percent in October after a similar gain in September.

“Today’s inflation data was enough to let bond yields drift back up to the highs at the long end of the curve,” said Jim Vogel, interest rates strategist at FTN Financial in Memphis.

The Fed is widely expected to raise rates at next month’s monetary policy meeting and has forecast three more rate hikes next year.